Analytical Corporate Finance by Angelo Corelli

Author:Angelo Corelli
Language: eng
Format: epub, pdf
ISBN: 9783319957623
Publisher: Springer International Publishing

where:

σi is the volatility of the returns of stock i.

σm is the volatility of the market returns.

ρim is the correlation coefficient between market returns and returns of stock i.

The total risk to which the firm is exposed is given by dividing the market beta by σjm. This would yield the following:

(8.1)

Equation (8.1) represents the relative standard deviation of the firm, scaled against the standard deviation of the market. It is possible to indicate such a measure as the total beta, which accounts for non-diversifiable risk.

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